What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-25 · 92 added, 76 removed, 251 unchanged (40% of the section changed)

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any statements regarding future economic conditions or performance;

and any statements of belief and any statement of assumptions underlying any of the foregoing.

In this Item 7, statements relating to expected sources of working capital, liquidity and funds for meeting equipment purchase obligations, expected capital expenditures and incurrence of debt, future acquisitions and dispositions of and upgrades to revenue equipment, future market for used equipment, future trucking capacity, expected freight demand and volumes, future rates and prices, future impact of the acquisition of Millis Transfer and the impact of its driver training programs, future depreciation and amortization, future asset utilization, expected tractor and trailer count, expected fleet age, future driver market, expected gains on sale of equipment, expected driver compensation, expected independent contractor usage, including the classification of our independent contractors, expected rent expense, expected changes to financial controls, planned allocation of capital, future equipment costs, future income taxes, future insurance and claims, future growth, future safety performance, expected regulatory action and the impact of regulatory changes, future compliance with laws, future litigation and our potential exposure for pending legal proceedings, future goodwill impairment, future inflation, future share prices, dividends, and repurchases, if any, future fuel expense and the future effectiveness of fuel surcharge programs, among others, are forward-looking statements.

and any statements of belief and any statements of assumptions underlying any of the foregoing.

Such statements may be identified by their use of terms or phrases such as “seek,” “expects,” “estimates,” “anticipates,” “projects,” “believes,” “hopes,” “plans,” “goals,” “intends,” “may,” “might,” “likely,” “will,” “should,” “would,” “could,” “potential,” “predict,” “continue,” “strategy,” “future,” “outlook,” and similar terms and phrases.

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We focus on providing quality service to targeted customers with a high density of freight in our regional operating areas.

We also offer temperature-controlled truckload services, which are not significant to our operations

and were reduced to serving select dedicated customers in 2019.

We also offer temperature-controlled truckload services, which are not significant to our operations and have been reduced to serving select dedicated customers since 2019.

We generally earn revenue based on the number of miles per load delivered and the revenue per mile paid.

We operate our consolidated operations under the brand names of Heartland Express and Millis Transfer.

We manage our business based on overall corporate operating goals and objectives that are the same for both brands.

Our Chief Operating Decision Maker, our CEO, evaluates the operational efficiencies of our transportation services, operating performance and asset allocation on a combined basis based on consolidated operating goals and objectives.

We believe the keys to success are maintaining high levels of customer service and safety, which are predicated on the availability of experienced drivers and late-model equipment.

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Our headquarters is located in North Liberty, Iowa, in a low-cost environment with ready access to a skilled, educated, and industrious workforce.

Our other terminals are located near major shipping corridors nationwide, affording proximity to customer locations, driver domiciles, and distribution centers.

Our other terminals are located near major shipping corridors nationwide, affording proximity to

customer locations, driver domiciles, and distribution centers.

Approximately 80% of our terminals are located within 200 miles of the 25 largest cities in the U.S.

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Recent Developments

On August 26, 2019 we completed our third acquisition within six years.

On August 26, 2019 we completed our third acquisition within seven years.

We acquired all the outstanding equity of Millis Transfer.

The Millis Transfer acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs during the period August 26, 2019 to December 31, 2019.

The Millis Transfer acquisition added additional dry van truckload capacity to our core operations and this resulted in increased revenues and increased operating costs after August 26, 2019.

Therefore, our financial results for 2019, only include Millis Transfer activity from August 26, 2019 to December 31, 2019.

In 2020, we generated operating revenues of $645.3 million, including fuel surcharges, net income of $70.8 million, and basic net income per share of $0.87 on basic weighted average outstanding shares of 81.4 million.

This compared to operating revenues of $596.8 million, including fuel surcharges, net income of $73.0 million, and basic net income per share of $0.89 on basic weighted average shares of 82.0 million in 2019.

We posted an 84.2% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2019, compared to 85.3% for the same period of 2018, and a 12.2% net margin (which represents net income as a percentage of operating revenues) for 2019, compared to 11.9% in the same period of 2018.

We posted an 85.5% operating ratio (which represents operating expenses as a percentage of operating revenues) for the year ended December 31, 2020, compared to 84.2% for the same period of 2019, and an 11.0% net margin (which represents net income as a percentage of operating revenues) for 2020, compared to 12.2% in the same period of 2019.

We posted an 84.0% non-GAAP adjusted operating ratio (1) (operating expenses as a percentage of operating revenues, net of fuel surcharge) for the year ended December 31, 2020 compared to 81.9% for the same period of 2019.

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Adjusted operating ratio (non-GAAP) 84.0 % 81.9 %

(a) Operating revenue excluding fuel surcharge revenue and adjusted operating ratio as reported in this annual report are based upon operating expenses, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue.

(a) Adjusted operating ratio as reported in this annual report is based upon operating expenses, net of fuel surcharge revenue, as a percentage of operating revenue excluding fuel surcharge revenue.

We believe that adjusted operating ratio is more representative of our underlying operations by excluding the volatility of fuel prices, which we cannot control.

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Our cash flow from operating activities for the twelve months ended December 31, 2020 was $178.9 million or 27.7% of operating revenues, compared to $146.4 million or 24.5% of operating revenues in 2019.

During 2019, we used $132.8 million in net investing cash flows, which was primarily used for $70.8 million of net purchases of revenue equipment and $61.9 million for the purchase of Millis Transfer.

We used $100.4 million in financing activities including $93.3 million used for repayment on acquired debt and $6.6 million was used to pay dividends to our shareholders during 2019.

As a result, our cash, cash equivalents, and restricted cash decreased by $86.9 million during the year ended December 31, 2019 to $96.1 million, with no outstanding debt.

Demand for our freight services generally accelerated in the second half of 2017 and remained elevated throughout all of 2018 (peak in mid-2018 and began to decline in the second half of 2018), which resulted in tight freight capacity.

During 2020, we used $111.0 million in net investing cash flows, which was primarily used for $111.2 million of net purchases of revenue equipment.

We used $32.7 million in financing activities including $6.5 million used to pay dividends to our shareholders and $25.7 million for stock repurchases during 2020.

As a result, our cash, cash equivalents, and restricted cash increased by $35.1 million during the year ended December 31, 2020 to $131.1 million, with no outstanding debt.

We operate in a cyclical industry.

Demand for our freight services was elevated throughout all of 2018 (peak in mid-2018 and began to decline in the second half of 2018), which resulted in tight freight capacity.

Throughout 2019, the general demand for freight services was at a level much lower than what was experienced throughout 2018.

weather played a larger role in our freight volumes during the first quarter of 2019 compared to the same quarter of 2018.

Competition for drivers, which has historically been intense, escalates during periods of increased freight demand which intensified during 2018.

Although not as intense currently as compared to 2018, competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

During 2020, the demand for freight services was volatile.

Freight volumes in early 2020 were comparative to seasonal volumes of the first quarter of 2019.

Then in March 2020 the demand for freight services dramatically increased as concerns over the COVID-19 pandemic escalated.

In response to the outbreak of COVID-19, there was a short term drop in the demand for freight services in early second quarter of 2020, due to many businesses temporarily shutting down or scaling back operations with much of the working population of the United States working from home.

By the end of the 2 nd quarter of 2020, demand for freight services began to improve as most businesses implemented their respective responses and protections against the pandemic which continued to build throughout the back half of 2020.

This led to an overall increase in freight demand and favorable pricing environment as freight rates increased throughout the second half of 2020.

The trucking industry has been faced with a qualified driver shortage.

The pandemic events of 2020 intensified an already challenging qualified driver market.

Competition for drivers, which has historically been intense, escalates during periods of

increased freight demand which intensified during the second half of 2020.

Competition for qualified drivers will continue to be challenging going forward due to the decreasing numbers of qualified drivers in our industry.

We continually explore new strategies to attract and retain qualified drivers with changes in market conditions and demands.

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As previously discussed, Millis Transfer's driver training program will provide an additional source of future potential professional drivers.

For 2020, we expect the industry trends experienced in 2019 will likely continue early in the year and then improve slightly later in the year with an overall market expectation more like what was experienced in 2016 and early 2017 and well below the strong freight demand experienced in 2018.

For 2021, we expect the industry trends experienced in the second half of 2020 will likely continue.

Growth History and Capital Allocation

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last six years, Millis Transfer, occurring on August 26, 2019.

In addition to organic growth through the development of our regional operating areas, we have completed eight acquisitions since 1986, with the most recent and our third acquisition within the last seven years, Millis Transfer, occurring on August 26, 2019.

These eight acquisitions have enabled us to solidify our position within existing regions, expand into new operating regions, and pursue new customer relationships in new markets.

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We manage our business primarily based on long-term cash flow generation prospects and return on equity, and we place less emphasis on quarterly earnings per share.

When we are experiencing or expect favorable freight markets, we invest in fleet expansion internally and through acquisitions.

When we are experiencing or expect favorable freight markets, we invest in fleet expansion internally, dependent on our ability to hire drivers that meet our qualifications, and through acquisitions.

When freight markets are less favorable, we concentrate our assets on customers offering the most acceptable returns and are willing to shrink our fleet to maintain margins and limit net capital expenditures.

During periods of slower growth, we have deployed available cash toward dividends and stock repurchases.

We have also deployed available cash opportunistically toward dividends and stock repurchases.

For the periods ended December 31, 2020, our operating cash flows as a percentage of operating revenues five-year average was 24.0%, our three-year average was 25.5%, and most recently for 2020 was 27.7%.

Tractor Strategy and Depreciation

Our CODM makes all revenue equipment purchasing and selling decisions on a combined basis based primarily on age, condition, and current market conditions for the equipment regardless of which legacy fleet the equipment was associated with.

Our tractor strategy is important to our goals and differs from the practices of many of our peers.

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At December 31, 2020, our tractor fleet had an average age of 1.7 years and our trailer fleet had an average age of 3.7 years.

During 2020, we expect the age of our trailer fleet to increase slightly and the age of our tractor fleet to remain relatively flat compared to 2019, based on estimated net capital expenditures in 2020.

During 2021, we expect the age of both our tractor and trailer fleets to decrease slightly compared to 2020, based on estimated net capital expenditures in 2021.

After salaries, wages, and benefits, and depreciation expense, fuel expense is our next highest operating cost.

Containment of fuel cost continues to be one of management's top priorities.

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The average price per gallon in 2021, through February 16, 2021, was $2.75.

Fuel prices have been relatively flat comparing the year of 2018 to 2019.

Fuel prices were volatile during 2020 with COVID-19 impacts generally deflating fuel prices.

We cannot predict what fuel prices will be throughout 2021.

We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due to tractor idling time, along with empty and out-of-route miles.

We are not able to pass through all fuel price increases through fuel surcharge agreements with customers due

to tractor idling time, along with empty and out-of-route miles.

Therefore, our operating income is negatively impacted with increased net fuel costs (fuel expense less fuel surcharge revenue) in a rising fuel environment and is positively impacted in a declining fuel environment.

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Income before income taxes 14.6 % 16.3 %

Income tax (benefit) expense 4.1 3.1

Income tax expense 3.6 4.1

Net income 11.0 % 12.2 %

Year Ended December 31, 2020 Compared with the Year Ended December 31, 2019

On August 26, 2019 we completed our third acquisition within six years.

On August 26, 2019 we completed our third acquisition within seven years.

We acquired all the outstanding equity of Millis Transfer.

The Millis Transfer acquisition added additional dry van truckload capacity to our core operations, this resulted in increased revenues and increased operating costs during the period August 26, 2019 to December 31, 2019.

Operating revenue decreased $14.0 million (2.3%), to $596.8 million for the year ended December 31, 2019 from $610.8 million for the year ended December 31, 2018.

The decrease in revenue was the net result of a decrease in fuel surcharge revenue of $10.3 million along with a decrease in trucking and other revenues of $3.7 million.

The Millis Transfer acquisition added additional dry van truckload capacity to our core operations during the period August 26, 2019 to December 31, 2019 and for the full year of 2020.

Operating revenue increased $48.5 million (8.1%), to $645.3 million for the year ended December 31, 2020 from $596.8 million for the year ended December 31, 2019.

The increase in revenue was the net result of an increase in trucking and other revenues of $61.8 million partially offset by a decrease in fuel surcharge revenue of $13.3 million.

Millis Transfer contributed approximately 24.0% of the operating revenues, for the year ended December 31, 2020.

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The number of tractors is directly affected by the number of available company drivers and independent contractors providing capacity to us.

During 2019, we acquired Millis Transfer and the additional drivers and operations created growth to our operating fleet during part of the third and all of the fourth quarters.

We also expect driver recruiting and retention to continue to be a challenge during 2020, but not as difficult as 2018, given the driver demographics in our industry

and will require us to continue to monitor and adjust our operating fleet and means of hiring and retaining drivers accordingly, including their compensation.

Our operating revenues are reviewed regularly on a combined basis across the U.S.

During 2019, we acquired Millis Transfer and the additional drivers and operations created growth to our operating fleet during part of the third and all of the fourth quarter of 2019 and the entire year of 2020.

For 2021, we expect the industry trends experienced in 2020 will likely continue due to the driver shortage within our industry that will impact recruiting and retention, exacerbated by COVID-19 impacts.

We also expect driver recruiting and retention to continue to be a challenge during 2021.

Our operating revenues are reviewed regularly by our CODM on a combined basis across the U.S.

due to the similar nature of our services offerings and related similar base pricing structure.

The operating revenues decrease was the result of a decrease in loaded miles partially offset by an increase in the average rate per loaded mile.

The operating revenues increase was the result of an increase in loaded miles along with an increase in the average rate per loaded mile.

Fuel surcharge revenues represent fuel costs passed on to customers based on customer specific fuel surcharge recovery rates and billed loaded miles.

Fuel surcharge revenues decreased primarily as a result of a decrease in average DOE diesel fuel prices of 4.0% during 2019 compared to 2018, as reported by the DOE along with decreased loaded miles during the same period.

Fuel surcharge revenues decreased primarily as a result of a decrease in average DOE diesel fuel prices of 16.5% during 2020 compared to 2019, as reported by the DOE.

Salaries, wages, and benefits increased $29.4 million (12.2%), to $269.5 million for the year ended December 31, 2020 from $240.1 million in the 2019 period.

Salaries, wages, and benefits increased primarily due to the addition of Millis Transfer drivers and full year effects of recent driver pay increases, partially offset by attrition of drivers and less miles driven during 2019 as well as a decline in non-driver employees and related benefit costs for both groups.

To address the demand for drivers across our industry, the Company implemented a driver wage increase that was effective July 2018.

Salaries, wages, and benefits increased primarily due to the addition of Millis Transfer drivers and partial year effects of recent driver pay increases, partially offset by attrition of drivers and less miles driven during 2020 as well as a decline in non-driver employees and related benefit costs for both groups.

To address the demand for drivers across our industry, the Company implemented a driver wage increase for legacy Heartland Express drivers that was effective late October 2020.

This equated to an approximate average increase of 6% per driver within the driver pay component of salaries, wages, and benefits expense.

In addition, health insurance and workers' compensation had a net increase of $1.3 million due to an overall net increase in severity and frequency of claims.

In addition, health insurance and workers' compensation had a net decrease of $1.0 million due to an overall net decrease in severity and frequency of claims.

Rent and purchased transportation decreased $3.4 million (42.0%), to $4.6 million for the year ended December 31, 2020 from $8.0 million in the comparable period of 2019.

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The decreases in operating leases of revenue equipment and leased terminal property expense was due to an effort to remove leased revenue equipment acquired from IDC from our operating fleet and decreasing the number of leased terminal locations during 2019.

We expect our rent expense related to terminal locations will be further reduced in 2020 resulting from the execution of a purchase option and related property acquisition expected in 2020.

Our rent expense related to terminal locations was further reduced in 2020 resulting from the execution of a purchase option and related property acquisition.

Fuel decreased $15.8 million (15.5%), to $86.1 million for the year ended December 31, 2020 from $101.9 million for the same period of 2019.

The decrease was primarily the result of a 4.0% decrease in the average diesel price per gallon as reported by the DOE.

In addition, reductions were due to fewer miles driven and increased fuel economy on our tractor fleet, idle management controls, and operational efficiencies.

Depreciation and amortization decreased $0.3 million (0.3%), to $100.2 million during the year ended December 31, 2019 from $100.5 million in the same period of 2018.

The decrease is attributable to a decrease in the amount of tractor and trailer depreciation expense in our legacy fleet partially offset by the increase for the addition of depreciation expense on the acquired Millis Transfer fleet and increases in intangible asset amortization.

The decrease in the DOE diesel fuel prices seen in 2020 was mostly due to a 15.7% average price decrease during the second quarter of 2020 compared to the first quarter of 2020.

Fuel prices remained fairly consistent during the third and fourth quarters of 2020, although they began to increase in late 2020.

This trend of fuel price increases has continued through February 2021.

The latest DOE diesel fuel price in February 2021 is up 8.9% to the end of 2020 and is up 12.7% compared to the 2020 yearly average.

We cannot currently predict how long and how much the average diesel prices will continue to increase.

Depreciation and amortization increased $9.7 million (9.7%), to $109.9 million during the year ended December 31, 2020 from $100.2 million in the same period of 2019.

The increase is attributable to an increase in the amount of tractor and trailer depreciation expense in our legacy fleet and the increase for the addition of depreciation expense on the acquired Millis Transfer fleet, partially offset by a slight decrease in intangible asset amortization.

We expect depreciation expense in 2021 to be approximately $110.0 million to $120.0 million.

The increase is primarily due to a full year of Millis Transfer depreciation expense.

Operating and maintenance expense decreased $2.6 million (9.8%), to $24.5 million during the year ended December 31, 2019, from $27.1 million in the same period of 2018.

Operating and maintenance costs decreased mainly due to the decrease in miles driven and the decrease in maintenance activity to prepare revenue equipment for sale during 2019 as there was a 21.0% decline in the amount of trailers sold and 61.2% decline in the amount of tractors sold during 2019 as compared to 2018.

Operating taxes and licenses expense decreased $1.9 million (11.8%), to $14.5 million during the year ended December 31, 2019 from $16.4 million in 2018, due to a lower number of revenue equipment units (tractors and trailers) licensed in 2019 as compared to 2018.

Insurance and claims expense decreased $0.2 million (1.3%), to $17.0 million during the year ended December 31, 2019 from $17.2 million in 2018, due to decreased severity and frequency of claims in 2019.

Other operating expenses increased $1.3 million (5.9%), to $22.8 million, during the year ended December 31, 2019 from $21.5 million in 2018, due mainly to $0.5 million increased professional services and $0.3 million other expenses primarily related to our acquisition of Millis Transfer in 2019 as compared to 2018.

Gains on the disposal of property and equipment increased $6.3 million (25.4%), to $31.3 million during the year ended December 31, 2019, from $25.0 million in the same period of 2018.

The increase was mainly due to a $6.6 million increase in gains on sales of trailer equipment.

The increase in gains on trailer sales was due to a significant increase in gains per unit sold in 2019 as compared to 2018.

We currently anticipate tractor and trailer equipment sale activity to be elevated in 2020 like 2019 as we expect to continue to refresh the acquired Millis Transfer fleet and to a lesser extent our legacy operating fleet.

Total gains are estimated to be much less than 2019 at approximately $10 million in 2020 mainly as a result of revaluation of Millis equipment in August 2019 as part of the acquisition.

Operating and maintenance expense increased $3.1 million (12.9%), to $27.6 million during the year ended December 31, 2020, from $24.5 million in the same period of 2019.

Operating and maintenance costs increased mainly due to an increase in tractors and trailers and miles driven resulting from the Millis Transfer acquisition.

In addition, there was an increase in maintenance activity to prepare revenue equipment for sale during 2020.

There was a 93.7% increase in the quantity of tractors sold, partially offset by a 58.4% decline in volume of trailers sold during 2020 as compared to 2019.

Operating taxes and licenses expense increased $0.5 million (3.5%), to $15.0 million during the year ended December 31, 2020 from $14.5 million in 2019, due to a higher number of revenue equipment units (tractors and trailers) licensed in 2020 as compared to 2019.

Insurance and claims expense increased $5.2 million (30.7%), to $22.2 million during the year ended December 31, 2020 from $17.0 million in 2019 due primarily to an increase in premiums along with increased severity and frequency of claims.

Increased premiums expense was due to a combination of increased revenue equipment units covered by our insurance policies during 2020 compared to 2019 mainly as a result of the Millis Transfer acquisition.

In addition, the overall cost to insure our revenue equipment, on a per unit basis, has increased year-over-year due to a lack of insurance capacity across the transportation industry mainly as a result of the current legal environment.

Other operating expenses increased $3.6 million (15.9%), to $26.4 million, during the year ended December 31, 2020 from $22.8 million in 2019, due mainly to more miles driven in 2020 due to a full year of Millis Transfer fleet miles.

Gains on the disposal of property and equipment decreased $16.5 million (52.7%), to $14.8 million during the year ended December 31, 2020, from $31.3 million in the same period of 2019.

The decrease was mainly due to a $15.0 million decrease in gains on sales of trailer equipment.

The decrease in gains on trailer sales was due to a significant decrease in gains per unit sold

in 2020 as compared to 2019 as well as a 58.4% decline in volume of trailers sold during 2020 as compared to 2019.

We currently anticipate tractor and trailer equipment sale activity to be elevated in 2021 compared to 2020, as we expect to continue to refresh the acquired Millis Transfer fleet and to a lesser extent our legacy operating fleet.

Total gains are estimated to be approximately $20 to $25 million in 2021.

This expectation is based on current used equipment prices and our anticipated timing of equipment sales however the used equipment market can be volatile and could impact these expectations.

Our effective tax rate was 24.9% and 24.9% for years ended December 31, 2020 and 2019, respectively.

The increase in the effective tax rate for 2019 is primarily attributable to a favorable tax adjustment in 2018 associated with the reduction in uncertain tax liabilities resulting from the expiration of the statute of limitations and estimated to actual tax return adjustments.

We expect the 2021 effective tax rate to be comparable to the 2020 effective tax rate.

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At December 31, 2020, we had $113.9 million in cash and cash equivalents, no outstanding debt, and $88.5 million available borrowing capacity on the line of credit.

As a result of letter of credit reductions subsequent to December 31, 2019, borrowing capacity was $90.4 million at February 17, 2020.

Operating cash flow for 2019 was $146.4 million and comparable to $146.5 million for 2018.

Operating cash flow for 2020 was $178.9 million compared to $146.4 million for 2019.

Cash flow from operating activities was 27.7% of operating revenues for the year ended December 31, 2020, compared to 24.5% for the same period of 2019.

Cash flows used in investing activities were $132.8 million during 2019, representing an increase in cash used of $95.0 million compared to cash flows used in investing activities of $37.8 million during 2018.

The increase in cash used in investing activities was mainly the result of $70.8 million of net purchases of revenue equipment in 2019, compared to $38.5 million of net purchases of revenue equipment in 2018, as well as $61.9 million used to acquire Millis Transfer in 2019.

We currently anticipate net capital expenditures to be approximately $120.0 million to $140.0 million for 2020, which relates mainly to

tractor and trailer purchases (approximately $95-$105 million) along with terminal development projects (approximately $25-35 million) throughout 2020.

Cash flows used in financing activities increased $68.5 million in 2019 compared to 2018.

This was due to the net effect of $93.3 million cash used for repayments of debt which was acquired as part of the Millis Transfer acquisition in 2019, partially offset by $25.1 million less cash used for repurchases of our common stock during 2019, as no shares were repurchased in 2019.

The CARES Act allows employers to defer the deposit and payment of the employer's share of Social Security taxes.

As a result, we have deferred remitting payroll taxes normally paid on a weekly basis until the end of 2021 when the first half of the deferred tax payments are due and 2022 when the second half of the deferred tax payments are due.

The CARES Act deferred federal payroll taxes as of December 31, 2020 was $8.9 million.

Cash flows used in investing activities were $111.0 million during 2020, representing a decrease in cash used of $21.8 million compared to cash flows used in investing activities of $132.8 million during 2019.

The decrease in cash used in investing activities was mainly the result of $61.9 million used to acquire Millis Transfer in 2019, partially offset by $40.3 million more net purchases of revenue equipment in 2020, compared to net purchases of revenue equipment in 2019.

We currently anticipate net capital expenditures to be approximately $80.0 million to $90.0 million for 2021.

Cash flows used in financing activities decreased $67.7 million in 2020 compared to 2019.

This was primarily due to the net effect of $93.3 million cash used for repayments of debt which was acquired as part of the Millis Transfer acquisition in 2019, partially offset by $25.7 million cash used for repurchases of our common stock during 2020, as no shares were repurchased in 2019.

There were no repayments of debt during 2020, as we had no indebtedness.

We have a stock repurchase program with 5.4 million shares remaining authorized for repurchase as of December 31, 2020 and the program has no expiration date.

There were no shares repurchased in the open market during the year ended December 31, 2019 and 1.4 million shares in 2018.

There were 1.5 million shares repurchased in the open market during the year ended December 31, 2020 and no shares were repurchased in 2019.

Repurchases are expected to continue from time to time, as determined by market conditions, cash flow requirements, securities law limitations, and other factors, until the number of shares authorized have been repurchased, or until the authorization is terminated.

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We paid income taxes, net of refunds, of $13.7 million in 2020, compared with $18.9 million during 2019.

The increase in 2019 income tax payments compared to 2018 is primarily due to a $6.7 million tax refund applicable to the 2017 tax return which was applied as an offset to our 2018 tax payments.

No such refund was applied to 2019.

The decline in net payments is due to a federal refund received during 2020, as well as increased net purchases of property and equipment, that qualified for additional tax deductions resulting in a reduction in estimated tax payments.

In November 2013, Heartland Express, Inc.

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$ 127.7 $ 121.9 $ — $ — $ 5.8

(1) Relates mainly to our commitment on revenue equipment purchases, net of estimated sale values of tractor equipment where we have contracted values for used equipment and expected purchase of a leased terminal location.

Due to estimated timing of revenue equipment sale transactions, sales of revenue equipment will extend into 2021 but receipt of new equipment is expected to have been completed in 2020.

(1) Relates mainly to our commitment on revenue equipment purchases, net of estimated sale values of tractor equipment where we have contracted values for used equipment.

(2) Obligations for unrecognized tax benefits represent potential liabilities and includes interest and penalties.

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Of this amount, $3.9 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2020.

The total net amount of accrued interest and penalties for such unrecognized tax benefits was $0.9 million at December 31, 2019, and is included in income taxes payable per the consolidated balance sheet.

The total net amount of accrued interest and penalties for such unrecognized tax benefits was $0.9 million at December 31, 2020, and is included in income taxes payable within the consolidated balance sheet.

Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded.

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Depreciable lives of tractors and trailers are 5 and 7 years, respectively, when purchased new.

Management estimates the useful lives on tractors based on average miles per truck per year as well as manufacturer warranty periods.

Management estimates the useful lives on tractors based on average miles per truck per year

as well as manufacturer warranty periods.

We have not historically run tractors outside of manufacturer warranty periods.

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As of September 30, 2020, the Company’s assessment of qualitative factors confirmed our conclusion that a goodwill impairment did not occur.

The significant qualitative factors considered include an increase in the Company’s share price and continued strong cash flow.

The significant qualitative factors considered include an increase in the Company’s revenue and continued strong cash flow.

Our reporting unit had fair value significantly in excess of its carrying value.

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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.

On December 22, 2017, the U.S.

Congress enacted the Tax Act, which made significant changes to U.S.

federal income tax law, including a reduction in the federal corporate tax rate to 21% effective January 1, 2018.

GAAP, we are required to recognize

the effect of a rate change on deferred tax assets and liabilities in the period in which the tax rate change is enacted.

A valuation allowance is required to be established for the amount of deferred income tax assets that are determined not to be realizable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis